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Lecture5 - The Classical Long-Run Model Part I Ariel...

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The Classical Long-Run Model - Part I Ariel Singerman January 25, 2008 Ariel Singerman () The Classical Long-Run Model - Part I January 25, 2008 1 / 11
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National Income Questions about sources and uses of a nation’s GDP: 1 How much do firms produce? what determines total production? what determines a nation’s GDP? 2 How is national income distributed? 3 Who buys the output of the economy? 4 What equilibrates demand and supply? Ariel Singerman () The Classical Long-Run Model - Part I January 25, 2008 2 / 11
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What determines total production? An economy’s output of goods and services (GDP) depends on: 1 its quantity of inputs (factors of production) 2 its ability to turn inputs in outputs, which is represented by the production function Ariel Singerman () The Classical Long-Run Model - Part I January 25, 2008 3 / 11
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What determines total production? - Factors of production The two most important factors of production or inputs are: capital (K): is the set of tools workers use (PC, tractor, etc.) labor (L): time spent working In this chapter we will take both as given (i.e.: fixed at some level), and we will also assume that they are fully utilized (full employment and no waste of resources) Ariel Singerman () The Classical Long-Run Model - Part I January 25, 2008 4 / 11
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What determines total production? - Production function
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